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Prior to COVID-19, most retailers were operating with the same business models that they had used for years. When COVID-19 hit, many retailers were identified as being nonessential, resulting in their stores being shut down for long periods of time. The only retailers allowed to remain open were those deemed essential — grocery stores and pharmacies, for example.
Being listed as a nonessential retailer resulted in lost sales and furloughing thousands of employees. As 2020 progressed, retailers focused on implementing strategies for social distancing and increased cleaning practices inside their stores. Many consumers avoided shopping in nonessential retail stores that sold apparel, shoes, and other items found in department stores, and instead focused on essential items like groceries and food.
As retailers enter 2021, essential and nonessential retailers will be faced with the need to evaluate their strategies. This is easier said than done for most retailers. Nonessential retailers will need an actionable vision that will set them apart from their competitors while attracting customers to shop in their stores. These same retailers will also have to determine if stores are strategic to their operating models or if moving to an online model is the better strategy.
An unknown for retailers is what will happen in the year ahead. Will Americans embrace getting vaccinated and will Covid-19 be in the rearview mirror by the end of 2021? Or do we have more hurdles ahead with the virus?
Retailers can’t operate based on assumptions. They must operate based on the needs of their customers and company. What’s certain is that the strategies used by retailers in 2021 must be an improvement over the strategies used in 2020.
The Science Of Strategy
In my consulting practice, most retailers that contract my services are focused on improving the strategy they were using to compete in the market. I enjoy working with retailers, but on the topic of strategy, I find it necessary to spend an exorbitant amount of time understanding who within a company came up with the current strategy and their motivation for doing so.
I continue to be amazed at the number of CEOs and other senior executives that identify the strategies they want to use based on “gut feel” vs. science. In some cases, retailers operate without a strategy.
To simplify the understanding of strategy, I leverage several methodologies that I learned from Capgemini and Deloitte. In addition, I utilize game theory, which is referred to as the science of strategy. When used correctly, game theory is ideal for comparing and analyzing what strategies will achieve the desired outcome for a retailer.
What I like most about game theory is that it provides an opportunity for executives to better understand the impacts of their decisions on their companies and, most often overlooked, their competitors.
For example, I’ve worked with retailers that prefer to minimize markdowns on the products they sell in their retail stores. However, increased competition reduced sales leading to a rash decision to markdown items by as much as 25%. Executives believed the decision would increase the number of customers in the stores to take advantage of the bargains.
The opposite happened. Customers chose to bypass the retailer altogether and instead go shopping at everyday low-price leaders or discounters that carried similar products. Reducing prices by only 25% failed to attract bargain hunters because those shoppers could find bigger savings elsewhere.
Strategy is among the most difficult challenges faced by retailers, and it’s about to become even more difficult.
Learning How To Think Big
When I worked at Amazon, leading the expansion of AmazonFresh and Pantry, a phrase we used frequently in the company was “think big.” Jeff Bezos challenged everyone who worked for Amazon to come up with ideas that would delight customers and, in turn, create an increased advantage for the company.
Thinking big was part of the culture at Amazon.
Most retailers, however, don’t think big and it’s not part of their culture.
A technique I use to teach retailers to think big is to review a series of examples that question the status quo within retail. These examples showcase the value of questioning the status quo and challenging a company’s culture to embrace big ideas and change. Each contains the name of a well-known retailer (or another company) along with a recommendation to acquire a company, merge with a company or make some other type of “big move”:
• Amazon acquires Target, Kohl’s, or Shopify.
• Shopify acquires Instacart.
• Kroger and Target merge.
• Facebook acquires Instacart or Target.
• Walmart acquires TikTok or Instacart.
• FedEx and Walmart partner and acquire Shopify.
• Tesla acquires Jeep.
• Instacart opens automated micro-fulfillment centers and becomes an online grocery retailer.
• Google acquires eBay, Instacart, or Shopify.
Game theory comes in when challenging and discussing the value of each example and identifying which recommendation would generate the best results.
The size of your retail business doesn’t matter. This exercise is helpful to understand the impact that big strategic moves can have on your company. By applying game theory, you can learn how to answer the who, what, when, where and why of each recommendation.
After this exercise, thinking strategically about the moves your company can make becomes easier — at least that’s what I’ve found in my work with my clients.
2021 is going to be another difficult year for many retailers. Learning how to think big is a must. The future of many companies will depend on it.